Bi-level optimization model based evaluation of wholesale electricity price intervals considering the wind power uncertainty and elastic demand

Abstract

In the electricity market operation, wholesale electricity prices or Locational Marginal Prices (LMP) vary according to electric demand (including power consumed, bidding prices and the level of price-sensitivity) as well as the penetration level of the wind power. The variable domain identification of LMP plays a very important role for market participants to assess and mitigate the risk on account of the uncertainty of wind power output forecasting. Traditionally, the Monte Carlo simulation (MCS) method can be used in order to determine the variable intervals of LMP. However, in this paper, the authors deploy a bi-level optimization model to calculate the upper and lower bounds of LMP when considering the uncertainty of wind power and elastic demand. The objective function of the upper-level optimization problem is to maximize (or minimize) LMP at a node whereas the objective function of the lower-level optimization problems is to calculate the optimal power generation of the units participating in supplying the load.